Indonesia To Start Taxing Crypto Transactions From May

Image credit: iStockphoto/Krystsina Yakubovich

Indonesia plans to charge value-added tax (VAT) on crypto-asset transactions and an income tax on capital gains from such investments at 0.1% each, starting from May 1, according to reports.

"Crypto-assets will be subject to VAT because they are a commodity as defined by the trade ministry. They are not a currency. So, we will impose income tax and VAT," tax official Hestu Yoga Saksama told a media briefing according to Reuters.

Despite the announcement, the Indonesian government is still working on implementing regulations for the taxes on crypto assets. The VAT rate on these assets remains at 6% or below, far lower than 11% levied on most Indonesian goods and services, while the income tax on capital gains matches that of shares.

Indonesian authorities have allowed citizens to trade virtual currencies such as bitcoin as a commodity but not use them as a means of payment.

Officials said that a wide-ranging tax law passed last year was the legal basis for new taxes on crypto assets. The law helps address revenue shortfalls from the economic impact of the COVID-19 pandemic, including an article specifying a 10% VAT on digital products sold by non-resident internet companies with a significant presence in the Indonesian market, including streaming services, applications, and digital games.

Cryptocurrency in Indonesia

The number of crypto-asset holders in Indonesia has surged to 11 million by the end of 2021, as interest in digital assets has surged during the COVID-19 pandemic.

Trade in crypto assets is surging in Indonesia, with a total of 2021 transactions reaching IDR859.4 trillion rupiah (USD59.83 billion), which is more than a 10-time increase from just IDR60 trillion in 2020, data from the Commodity Futures Trading Regulatory Agency showed.

Indonesia has approved crypto assets trading in the commodities exchange, with oversight by the trade ministry and the Commodity Futures Trading Regulatory Agency.

Amid this boom in crypto trading in Southeast Asia's largest economy, financial firms are not allowed to offer and facilitate sales of crypto assets.

Earlier this January, Indonesia's Financial Services Authority (Otoritas Jasa Keuangan or OJK) released a statement via Instagram: "OJK has strictly prohibited financial service institutions from using, marketing, and/or facilitating crypto asset trading."

It further warned that crypto assets are volatile and that investors should thoroughly research their risks before buying in.

Crypto as "Haram"

Aside from OJK's warning, another blow to Indonesia's cryptocurrency industry is the issuance of a fatwa declaring cryptocurrencies as haram.

Tajdid Central Leadership (PP) Muhammadiyah and the Tarjih Assembly issued a fatwa against cryptocurrencies just last January. According to the fatwa, Bitcoin and other such coins for investment and payment are considered haram.

Tarjih Muhammadiyah, one of the largest non-government Islamic organizations in the country, is the third Islamic organization to issue a fatwa against the use of cryptocurrencies in Indonesia. In Islam, a fatwa is an Islamic law ruling given by an Islamic scholar in response to an inquiry. Meanwhile, haram means unlawful or prohibited, the opposite of halal.

According to the fatwa, digital currencies, like Bitcoin, are speculative investments and highly volatile. Additionally, they do not have a physical form nor are backed by any other assets such as gold. Therefore, they are believed to be “obscure,” making them unlawful under Islamic laws.

Image credit: iStockphoto/Krystsina Yakubovich